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SEC Charges CCO with AML Failures

The SEC commenced an enforcement action against a broker-dealer’s chief compliance officer/anti-money laundering officer for failing to file Suspicious Activity Reports. The SEC alleges that the CCO/AML Officer had actual knowledge of red flags of illegal penny stock trading and money laundering. Such red flags included physical deposits of large blocks of penny stocks followed by rapid liquidation, simultaneous trading in two customer accounts, quick changes in issuer business plans, and clearly misleading company press releases. Also, the SEC maintains that a quick Google search would have raised other red flags including prior enforcement actions and articles alleging pump and dump activity. The SEC accuses the CCO/AML Officer for aiding and abetting and causing his firm’s violations of Rule 17a-8, which requires a broker-dealer to comply with the SAR requirements of the Bank Secrecy Act.

OUR TAKE: The regulators have been keen to impose personal liability on CCOs for violations of the Anti-Money Laundering rules including failures to file SARs. In fact, FinCEN can impose a $25,000 fine on an AML Officer for each failure to file an SAR (See e.g. U.S. Dept of Treasury v. Haider).